OPINION: Necessary questions about the Cook Inlet gas monopoly

Has been updated: 49 few minutes ago release date: 49 few minutes ago

In addressing the Cook Inlet natural gas supply challenges facing southcentral Alaska, one undeniable feature of the production structure is that only one company (Hilcorp) controls approximately 90% of the production. It’s about being there. This does not imply a judgment as to Hilcorp’s competency or integrity. However, Hilcorp’s historical prominence is that rather than developing new fields, it takes over old fields and expands production. For example, it acquired BP’s Prudhoe Bay shares. And Hilcorp originally entered the market by purchasing Marathon’s assets in the Cook Inlet market. So there’s no question that the lack of diversity among Cook Inlet producers means we’re missing out on a wealth of voices that can help solve problems.

It would also be unwise to not consider the possibility that Hilcorp may withhold supply in order to increase gas sales prices in the next round of contracts. This isn’t to suggest they are, but it’s a question you have to ask.

Several strategies can address this possibility. The state has the right to receive Hilcorp’s geological and engineering data. One of the world’s top geological and engineering firms could be hired to analyze what Hilcorp has while keeping the data confidential. Due to the urgency of the issue, the company may procure the work independently.

Although it would be financially prohibitive to build a small diameter gas pipeline (a “bullet line”) from the North Slope just for Alaska’s needs, mixing liquids (ethane, butane, propane) with gas has been in the works for years. I was interested in that. On the north slope, larger, more efficient pipelines transport it to south-central Alaska (lowering per unit cost), then strip the liquid and export it. At the time, liquids were more valuable in oil recovery, but since then, reservoirs have developed and the gas here has become more valuable. Hilcorp is the operator of the Prudhoe Bay field, the state’s largest gas reservoir, and while such gas would compete with its Cook Inlet operations, it may be beneficial to update the review of this option. .

Considering these opportunities can cost approximately $1 million and take several months to see results.

Other small businesses in Cook Inlet also have gas reserves. However, most of them are severely undercapitalized. If that gas were to be developed, strong partners would be needed. The state of Alaska or the city of Anchorage could consult with other well-capitalized producers to see what arrangements could be made to partner with these small businesses.

Monopolies also exist in the sale (and production) of end-use gases. One particularly well-known and historically successful means of expanding resources is conservation. Despite the potential impact it may have on business, power and gas companies can, for example, reduce gas savings or reduce heating and electricity bills by lowering the thermostat or adjusting the speed. There has been little information or encouragement released about how things will get cheaper. Use back-up water heaters and dim or turn off indoor and outdoor lights. Good to know.

Answering these questions will take some time. At that point, if the supply problem is real and there appears to be no practical answer that is expedient, feasible, and affordable, state and local governments should stay out of the way of power companies and import gas as needed. Things should be promoted as soon as possible. As much as possible.

Roger Marks I’m an economist practicing in Anchorage. From 1983 until 2008, he served as Senior Petroleum Economist for the Alaska Division of Revenue and Taxation. He has no financial ties to the oil industry.

The views expressed here are those of the author and are not necessarily endorsed by the Anchorage Daily News, which welcomes a wide range of viewpoints.To submit your work for consideration, please send an email Commentary(at)adn.com. Submissions of less than 200 words should be sent to: [email protected] or Click here to submit from any web browser.Read all guidelines for letters and comments here.